We Don’t Lose Jobs Due to Mechanization

by Mary Lucia Darst

The United States thinks it has a dilemma regarding our low-skilled manufacturing workers. One could easily argue that ours are better off than those of similar employment and skill level in the rest of the world. Everyone in the lawful workforce has enough to eat, access to medical care, and shelter; the nation has a magnificent social safety net, whose critics can only point to the relative number of millionaires and billionaires in the country when claiming that “more could and should be done” (logically the two things don’t relate at all). The majority of people hold secondary level diplomas, and those that don’t still usually have two years of secondary school. From an international perspective, American workers are some of the most privileged in the world, and from an historical view, the richness of their lives is beyond the comprehension or imaginings of their forefathers.

Into this otherwise rosy vision comes a ghastly creature: mechanization, behind which lurks the spectre of automation. These two concepts are best pictured as chain-rattling phantoms of a Dickensian nature in order to grasp the horror they elicit. The ghosts of Christmas Present and Future stand before Scrooge – or the American people – even as they suffer nostalgic agonies for Christmas Past. The analogy is apropos with the way that Christmas is brandished as a weapon by slippery slope luddites who sentimentally proclaim that without protections, “workers won’t be able to give their families nice Christmases.”

The “mech monster,” though, is quite different from the ghostly creature of populist imaginings. In April 2017, Ball State University published a study titled “The Myth and the Reality of Manufacturing in America,” which examined the American manufacturing sector from 1998 to 2017 with particular emphasis on the period from 2008 to 2013. The official findings are quite encouraging:

The size of American manufacturing as represented by the total value of goods produced (GDP) has enjoyed a healthy growth trend since almost the founding of the republic. This trend continued throughout the last several decades, across recessions and trade agreement regimes. However, employment over the same period was largely stagnated.

This is a remarkably different picture than the one preached by the current brand of protectionist populists. The difference is the one between the myth and reality of the study’s title. Also important is the fact that manufacturing makes up and employs less than ten percent of the American economy and population, with the share expected to drop further in the coming decades.

The reality, the authors explain, is a change in production. Due to increased mechanization, a 2013 worker is significantly more productive than he was in 1998. As part of this increase, manufactories have not had to hire more people in order to increase production. Hence, the employment stagnation.

The increase in productivity and decrease in price facilitates an increased quantity demand by consumers. But to evaluate the effects of productivity growth on employment, we focus on a period from 2000 to 2010, which was the largest decline in manufacturing employment in U.S. history. Here we calculated the total employees needed to produce 2010 levels of production, but using 2000-level worker productivity. Of course this isn’t actually the lost jobs to productivity; because without higher productivity, the quantity demanded of the products purchased by consumers would not have risen; so this should be as an illustration of the impacts of productivity growth. Had we kept 2000-levels of productivity and applied them to 2010-levels of production, we would have required 20.9 million workers. Instead, we employed only 12.1 million.

As part of tearing down the mythological aspects of the discussion, a crucial part of the study is the understanding that “stagnation” does not equal “loss.” In the context of the study, there were no jobs lost to the machines because the positions did not exist prior to the invention and implementation of computers – the authors identify information technology as the root cause of the increase in production. 8.8 million workers did not lose their jobs, having not been employed in the relevant positions in the first place. The idea that there are 8.8 million potential jobs that humans might have is a myth; the jobs and displaced workers are phantoms, conjured in the minds of pandering alarmists and/or populists.

The second myth addressed by the study relates to the difference between durable and non-durable goods. The durable goods market, the authors explained, is particularly vulnerable to economic recessions and is prone to slumps even when the rest of the economy is booming. This is caused by durable goods, e.g. automobiles or household appliances, being long-term investments, which consumers purchase infrequently in good times and almost never in bad ones. Conversely, demand for non-durable goods, e.g. clothing or paper products, is reasonably constant and rebounds more quickly from any downturn. The myth contained in the durable – non-durable difference is a tendency to combine the two categories under the term “manufacturing,” and then to use the durable goods market as the metric for judging the health of the whole. Such a forecast is practically guaranteed to be gloomy – and wildly inaccurate.

The charts included in the study demonstrate that in the 2000s, the jobs lost from the durable goods sector were almost triple those of the non-durable goods sphere: 3,737,200 jobs compared to 1,910,500. According to the statistics provided, since 2010, the “holes” created by the lost jobs have been closed by the creation of new jobs in the computer and electronics divisions (classified as durable goods) and textile and plastics industries (non-durable goods). The aspect implicit in the increase in available jobs in the durable goods field is that these fields require skilled workers. The study’s authors alluded to this unspoken facet in the final sentence of the policy recommendations section, “Human capital interventions should also begin at the pre-K level, focusing on skills that enable acquisition of the mathematical and cognitive skills required of the modern manufacturing workforce.” There are jobs, but the workers are not skilled enough to fill them.

Financial publication The Balance found that as of July 31, 2018, over half a million (600,000+) skilled positions in manufacturing are unfilled due to lack of workers. Such a finding ought to cast a new light on the national discussion. The nation doesn’t need 25 million new jobs in manufacturing, though the sentiment is appreciated; it needs workers to go acquire the skills necessary to fill the currently available jobs.

Additionally, The Balance argued that lack of workers is a primary reason for the “decline” of American manufacturing – “decline” in this case equalling as a “field of employment.” The two biggest human capital drains from the manufacturing sector are the healthcare and finance industries. This situation is a result of simple demographics. The US population resembles an hourglass, with a large Baby Boomer segment, a narrow Generation X section, and a massive Generation Y (millennial) and Z group. The Baby Boomers began to retire around the early 2000s, right at the beginning of the supposed decline of manufacturing. In doing so, they created new, lucrative positions as they became a market that required medical professionals to care for them and financial managers to safeguard money earned in manufacturing. Consequently, healthcare and finance became the domains of Gens Y and Z, whose career choices probably helped fuel increased mechanization. In this context, job share loss does not, once again, necessarily signify actual job loss and unemployment; rather it can mean that people are not working in manufacturing because they are working in other fields. There is one catch with the otherwise natural market-demographic shift: healthcare and finance are both industries which require, at least in the US, individuals to be formally recognized as skilled workers, usually through university degrees.

It is this rub that has caused the nation to capitulate to a single sector taking it hostage psychologically and culturally. Americans tend to view manufacturing as the domain of the unskilled, an area where the less intelligent or less educated do work undesirable to others and provide for themselves in the process. There is some confusion over whether such a vision is justified; The Economic Policy Institute reported in 2015 that the average wage for a manufacturing worker without a college degree was $7.78 per hour, only twenty-eight cents above minimum wage, although The Balance claimed that such a worker earned $26.50 per hour once benefits and other intangibles were included. The cultural apotheosis of manufacturing excludes as irrelevant the consumer, production, value, or really anything that is genuinely related to the economic function and purpose of manufacturing. Instead the discussion surrounding production is one of social welfare; it is a discussion that proposes freely giving away efficiency, productivity, and the ensuing consumer benefits, i.e. lower prices, in exchange for something undefined but supposedly good. From the unassailable rock of social welfare tropes spring the hatred of the very productivity changes that enable modern American workers to live a materially rich life.

Mary Lucia Darst was an intern at the Austrian Economics Center from January to April 2018. She graduated from Columbia University with an MA in History and Literature. In addition to working as a writer and researcher, she is an active classical musician.

The views expressed on AustrianCenter.com are not necessarily those of the Austrian Economics Center.